Retail Set to Ride Out A Recession

Despite a shaky economic outlook, the U.S. retail industry relies on its chain stores, online sales, and shopaholics to reinforce its big business status.

Retail is the second largest industry in the United States, both in number of establishments and employees. The $4.5 trillion industry accounts for about 12.4% of all U.S. business establishments. Single-store businesses account for more than 95% of all U.S. retailers, but generate less than 50% of all retail store sales; not surprisingly, chain stores reign supreme in amassing total revenue.

The retail industry exists in many formats—from boutiques to national department stores to the online marketplace. In addition, specialty shops, discount warehouses, mail-order catalogs, independent stores, chain restaurants, pharmacies, supermarkets, and various other outlets comprise the 1.6 million retail establishments in the United States. More than 24 million employees, or about one in five American workers, pay their bills thanks to jobs in the retail sector.

Even with all of the chatter about a U.S. economic recession, the National Retail Federation (NRF) released its industry forecast in January and predicted a 3.5% increase in the retail sales industry in 2008. Experts expected a sluggish start to the year, but are hopeful that the second half of 2008 will provide a much-needed rebound. (The federal government’s economic stimulus program may well give the retail industry the jolt it needs.) NRF expects industry sales to increase by 3.8% in the second half as economic conditions improve in the third and fourth quarters.

So far, NRF predictions have been relatively accurate. Retail did struggle in February, dropping 0.6% from the previous month, according to U.S. Department of Commerce data, but this dip is not atypical. Consumers tend to keep their wallets in their pockets in February to recover from holiday gift-giving and post-holiday shopping free-for-alls. And while the November and December statistics were not as high as the industry had hoped, retailers still stacked up $469.9 billion during the two-month sales bonanza.

Economists are looking at the retail industry with a discerning, but hopeful eye. “Consumers will be under financial stress from high energy costs, the fallout from the housing slump, and sluggish employment and income growth,” says NRF Chief Economist Rosalind Wells. “Shoppers will seek to pay down debt, spend more in line with income growth, and approach discretionary purchases with more restraint. Retailers will once again be forced to market to more practical consumers, many of whom will be looking to trade down. Even areas of past high growth like luxury goods and online shopping will feel the pressure.”

But the retail industry will not succumb to this pressure. In fact, some retail subsectors are managing to net gains. Clothes and clothing accessory stores saw a slight increase in sales from February to March, and sales at health and personal care stores increased 9% (unadjusted) from 2007.

Here is a look at just one of the many U.S. retail success stories.

Marion Making Its Mark

Just west of Memphis, TN across the Mississippi River, Marion, AR is an area that has retailers taking notice. The city’s expanding retail market, with double-digit growth and interstate exposure, is getting the attention of commercial developers and investors in the Memphis, TN market. The city landed almost $21 million worth of commercial real estate growth in 2006, solidifying its position as the fastest growing sector of the Memphis metro area. A recent census put Marion’s population at 10,408, a 17% jump over the 2000 decennial census. And with a young population (median age 32.3) and an average household income of $59,000, it’s a demographic that is enticing retailers.

A 92-acre mixed-use retail, office, and residential development at the intersection of U.S. Highway 64 and Interstate 55 is the location of a significant piece of Marion’s retail development. Traffic count on I-55 past the U.S. 64 interchange is in excess of 42,000 vehicles per day. Angelo’s Grove, developed by Memphis developers Kenneth F. Farrell and Richard Leike, already has located national fast food outlets Wendy’s, Zaxby’s, and Captain D’s, along with Colton’s (a casual restaurant). A 27,000-square-foot strip center is a new addition to Angelo’s Grove, as are Country Inn & Suites, Wingate Inn, and an office park. There is space allocated for a big-box retailer, secondary anchors, a 12-screen cinema, and a town center with mixed use on three levels. A 260-unit apartment complex is under construction adjacent to the center.

Besides the interstate exposure and high traffic count, residential growth is beckoning Memphis-area retailers to make Marion one of their suburban branch locations. The city’s housing stock is increasing at a rate of more than 6% per year. More than 250 upscale homes have been built just outside the city limits in the past four years. The numbers are not an anomaly for Marion, where almost 1,500 new homes have been built in the past 10 years.

Growth is being driven by the suburban sprawl of the Memphis metro area on the east side of the Mississippi River, where new suburbs are being built 30 to 45 miles from the city’s downtown business and entertainment center. By contrast, Marion’s primary residential subdivisions are less than 10 miles from downtown Memphis. The combination of lower property taxes, low crime rates, a highly rated school system, and quick access to big city amenities continues to draw Memphis area residents.

Despite growth in Marion’s retail market, big opportunities still remain, particularly in the areas of clothing and restaurants. Total retail sales potential for the area of Marion and Memphis’ downtown residential community is $1.279 billion.